Housing market chills as mortgage rates, prices scare buyers

NEW YORK — It’s the summer that cooled off the housing market.

Rising mortgage rates have combined with already high home prices to discourage would-be buyers. Mortgage applications have declined sharply. Sales of previously occupied homes have fallen for five straight months, during what is generally the busiest time of year in real estate.

The rate on a 30-year mortgage averaged around 5.51% last week, according to mortgage buyer Freddie Mac; a year ago it was close to 2.88%. The increase in rates is leaving buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less desirable neighborhood, or drop out of the market, at least until rates come down.

All signals point toward the Federal Reserve continuing to raise interest rates to combat inflation, promising little relief for potential buyers at least for the rest of the year.

Kyle Tomcak, 39, was in the market for a home priced around $450,000 to support his in-laws. Tomcak and his wife bid on every house they toured, regardless of whether they fell in love with the home or not.

Tomcak, a project manager for a commercial painting company from Aurora, Colorado, said his search became increasingly dispiriting as he not only lost out to investors fronting cash offers $100,000 over asking price but as mortgage rates started to balloon.

Tomcak had hoped to lock in a monthly mortgage payment of $2,350. Higher rates meant he’d have to alter his search. His mortgage consultant recommended dropping the maximum price he’d pay for a home, first to $300,000 then to $200,000.

“All of a sudden, your buying power is less … even though your payments are the same,” said Tomcak, who has pulled out of the housing search.

Data provided to The Associated Press by the real estate data company Redfin shows how much home a buyer could get with a $2,000 a month mortgage payment. In Providence, Rhode Island, for example an average buyer a year ago could have purchased a roughly 4,900-square-foot home for that size mortgage payment. Now that amount only gets a buyer a 2,200 square foot home.

In Seattle, a hotter housing market, a $2,000-a-month payment this time last year would have gotten a buyer a modest 1,300-square-foot home. That sort of payment would get them only a 950-square-foot apartment now.

“Simply put, people cannot afford the same home as they could have a year ago,” said Daryl Fairweather, an economist with Redfin.

Besides pushing would-be…